Remortgage and purchase of new property (sdlt and deed of trust)

jimjones235

I've been discussing our long term plans with my partner. She is in the process of buying a house with a good deposit (160k), the bank have offered her a mortgage (offered 200k). We plan to live together at some point in the future (for reasons too long and complex for here it can't be right away), but that will be a year or so away. So my suggestion was that by adding to her deposit she could buy somewhere a little bigger which suit both our needs in the long term. I currently own a property (50% ltv) which i live in, which by coincidence I'm remortgaging anyway. So my plan was to increase my mortgage as part of that to raise an extra 30k to put into the new house. Then in a year or so when i move to the new house I'll sell my property and use the proceeds to reduce the mortgage on the new place at which point we'd become tenants in common and the title transferred to both names. Obviously, that second transaction would be subject to sdlt for half tge value of the mortgage (100k so less than 120 so nothing?).

My questions relate to the first transaction.... I'm trying to work out the best way to do this, i could gift her the 30k, she does everything in her name, i look a bit stupid signing gift waivers on money I've essentially borrowed. Then later she gifts me some of the property back, I'm unsure of this, whilst i trust her, I wouldn't want to be lieing on legal documents (though it wouldn't be a gift i was expecting to be repaid and no written agreement would exist).. If i loan her the money then it may affect her mortgage application, is that the case? I did have a thought of using a deed of trust or adding a second charge to the property, so making it an interest free loan only payable once the lender has received their share, is that a possibility? Would the lender need to agree to this?and are they likely to do so?

Finally, sdlt, this would be my second property (because of my current house), so to avoid an extra £12k I'd prefer not to be on the deeds, in the first instance: Not trying to avoid anything here and will obviously pay on second transaction (at which point this would be my only house). Would the second home sdlt apply with a deed of trust? Would i be counted as purchasing the full value of the house or just the 30k?

Alternatively, would the lender be concerned if i lent the money to her as an unsecured non repayable loan?

SDLT_Geek

There are lots of questions here, but SDLT is my thing, so I will look at SDLT on the first transaction only. If you have any share in the ownership of the new property at the point it is bought, the 3% surcharge will be due on the whole of the price because you retain your property. It makes no difference whether you are on the title or just have an underlying beneficial interest in the new property. It would be different if you have no share in the new property, perhaps if you had made a genuine gift or loan of the money. But as you indicate there are likely to be other problems with this.

An interesting question is whether the surcharge is recoverable when you later sell your property and move in to the new one (assuming the sale is within three years of the purchase). One of the conditions for that recovery is that at the completion date of the purchase the buyer intends to live in the new property. There are difficulties in the application of the rules where the intention is not to move in straight away, but to move in later.

Pixie5740

Yes many lenders will be concerned if she is borrowing part of the deposit. You may face issues remortgaging and releasing equity in order to gift/loan your girlfriend the £30k.

As SDLT Geek has pointed out it's not that you just have to avoid being named on the deeds you have to avoid having any beneficial interest in the property or the higher rate of SDLT will be applicable.

Other options to consider would be:

1) Your partner holding of buying somewhere until you are in a position to purchase a property jointly.

2) You sell you place, move into rented accommodation and purchase the larger place jointly.

3) Your partner buys a property she can afford on her own without your input and you accept that you will be living somewhere a bit smaller when you eventually do live together.

jimjones235

Thanks both great replies.

The lender for my remortgage seems ok with borrowing the money (with the 30k that puts me at 50% ltv, they still have over 180k of equity), the new mortgage payments will be less than my current payments (was on rubbish fixed rate), as long as it's not btl...


Makes total sense re:sdlt, it was what i thought might be the case.. So I think that makes me jointly purchasing in any form at this stage impractical. So I've been reading up on loaning the money, if the loan is interest free and doesn't affect affordability, then it seems some lenders may be ok with it? She will still have 160k deposit plus the 30k so quite sizeable as a deposit. She will be using natwest as her lender, and they allow gifts from friends as deposits, they also allow loans from family with a second charge, I'm not family but this would suit us i think "an interest free loan with a second charge" it's whether they will do it is the question.

I have no qualms gifting her the money, but my worry would be that if at a later date i then buy into the property (name goes on deeds and mortgage) the lender would then question the nature of the gift.. As i say, I don't want to lie.. But ultimately if we haven't signed up to any agreement and I'm happy to walk away leaving her with my 30k then I'm not lying when i say it's a gift.. Which is why I'm wondering if the loan route is more transparent from their perspective..

00ec25

the higher rate SDLT applies only where the interest in the additional property is worth more than £40,000

"worth" means the % share of the property which you own (legally or beneficially) equates to >£40k

if you "give" her £30k and take a corresponding interest in the property then you won't incur the higher rate at that point in time since you have not hit the 40k threshold.

Pixie5740

00ec25 wrote: »

the higher rate SDLT applies only where the interest in the additional property is worth more than £40,000

"worth" means the % share of the property which you own (legally or beneficially) equates to >£40k

if you "give" her £30k and take a corresponding interest in the property then you won't incur the higher rate at that point in time since you have not hit the 40k threshold.

Good point well made.

Pixie5740

OP, are you sure NatWest will accept a loaned deposit from friends? According to NatWest's lending criteria:

"We accept deposits (and gifts) from parents and guardians and treat them as if they were the applicant’s own deposit. This applies even where the money is advanced against a formal loan agreement or a second charge is put in place to secure the parents’ rights. Any monthly cost relating to a formal loan agreement must be included in the affordability calculation."

"Gifts from third parties (not sellers/vendors) are an acceptable source of an applicant's deposit, but only where there is no repayment required. We will require a signed letter from the third party confirming they have no interest in the property and that there will be no repayment required. The letter must be addressed to NatWest and confirm the amounts, who the money is coming from, who it's going to and the relationship to the applicant."

There's no mention of borrowed deposits form 3rd parties so unless you have a very bizarre relationship where you are also the parent or guardian of your girlfriend I don't think NatWest will accept a loaned deposit coming from you. This is probably a case for a mortgage broker.

jimjones235

00ec25 wrote: »

the higher rate SDLT applies only where the interest in the additional property is worth more than £40,000

"worth" means the % share of the property which you own (legally or beneficially) equates to >£40k

if you "give" her £30k and take a corresponding interest in the property then you won't incur the higher rate at that point in time since you have not hit the 40k threshold.

If i was to have any interest in the property and to get around the loaned deposit issues my name needed to be on the mortgage, could be argued that my interest would be the 30k + 100k (half of mortgage)?

jimjones235

Pixie5740 wrote: »

OP, are you sure NatWest will accept a loaned deposit from friends? According to NatWest's lending criteria:

...

There's no mention of borrowed deposits form 3rd parties so unless you have a very bizarre relationship where you are also the parent or guardian of your girlfriend I don't think NatWest will accept a loaned deposit coming from you. This is probably a case for a mortgage broker.

No, I'm not sure, it was why i was asking. They don't say they don't either, but i guess that's the point..

SDLT_Geek

00ec25 wrote: »

the higher rate SDLT applies only where the interest in the additional property is worth more than £40,000

"worth" means the % share of the property which you own (legally or beneficially) equates to >£40k

if you "give" her £30k and take a corresponding interest in the property then you won't incur the higher rate at that point in time since you have not hit the 40k threshold.

What 00ec25 says about "buying" a share in a property for only £30,000 is true. Where it would not work however is if at the date of the purchase by your partner of the property from the seller, you are then becoming a joint owner with her. In that case the stamp duty land tax analysis is that all those taking a beneficial interest in the property are "joint purchasers". We are required to look at the overall price paid to the seller, not the contribution made by each of the joint purchasers. If for any one of the purchasers the 3% surcharge would have been due, then it is due for them all. See Finance Act 2003/Sch4ZA.


So the idea does not work if the £30K is given to her at the time of her purchase in order for you to obtain a share in the property.